Understanding reference transactions and PayPal
During my WooConf talk, I discussed a little bit about PayPal, why it’s useful as an eCommerce checkout option, and why site owners with subscriptions need Reference Transactions enabled. The common question after that was: what they heck are Reference Transactions?
Well, it’s one of those things in PayPal that changes everything (for subscriptions) but is easy to never, ever find and know is available to you.
In short, Reference Transactions enables you to alter subscriptions on your site: stuff like the end date of a subscription for instance, or the amount of the subscription. This is really helpful for those times when you want to make adjustments but don’t want to fully cancel the subscription.
And you shouldn’t start a subscription service and accept PayPal unless you have Reference Transactions enabled.
I’ve talked about this before, soon after I discovered it, but it’s worth a post of its own. It is a game changer for PayPal, which is historically very challenging to work with for subscriptions.
Reference transactions is an account setting that currently requires a manual contact request to PayPal support, including a textual description of your anticipated revenue and a few other details. It’s annoying.
Enabling Reference Transactions
Excuse me for quoting myself, but I’m going to just borrow this part from the last post:
Unfortunately, enabling reference transactions isn’t that simple, and the feature doesn’t apply to old subscriptions.
Requesting PayPal to enable reference transactions is pretty well described by the Prospress team over on the WooCommerce Subscriptions docs. I used nearly identical text to Prospress’s recommendation when I emailed PayPal. They followed up quite quickly, and asked me for four key points before enabling the feature:
- Business justification, to briefly explain the business model
- Number of repeat customers
- Number of reference transactions per customer
- Projected total payment volume of reference transactions
So, I emailed them back, using estimates based on my 2015 sales, but I did fib a little bit, because only about half of last year’s sales went through PayPal. You can see my answers here. Being able to answer these questions is important, because apparently they may reject you if you don’t meet a transaction threshold (rumored to be maybe around $5,000 revenue per month).
Getting around the mess, with Braintree
So this is where it gets interesting!
At WooConf, I called PayPal basic a, “steaming pile of emoji” for subscriptions (though to be fair, I said other nice things about PayPal, which I’ll get to shortly). PayPal was the top sponsor of the event, and I went to talk to the Braintree team (a part of PayPal) afterward.
They were actually pretty happy with my talk and comments! They agree that without Reference Transactions, PayPal basic is not so good for subscriptions. And they told me something else too, that makes sense, but I haven’t 100% verified: Braintree customers — including users of the WooCommerce Braintree extension — have Reference Transactions enabled by default for PayPal basic checkout.
Shazam! No support, no mess. This is a great, great feature of Braintree if confirmed, and I have no reason not to believe them.
For folks not aware of Braintree, it had early momentum like Stripe, and they went after the enterprise while Stripe went after consumer developers, and were acquired by PayPal in 2013. They were well known for their API and ease of use compared to other merchant processors, much like Stripe. Braintree also is the maker of Venmo, a service for easily sending folks money.
Anyway, the point is this: if you are just starting a subscription service, it’s compelling to just use Braintree, and get PayPal with Reference Transactions with no hassle — and importantly, without requiring a history of showing revenue for your store.
Why bother with PayPal at all?
You may ask why bother with PayPal at all. Well, like I said during my talk, it’s easy for buyers to think of their PayPal accounts as free money, or at least the little online piggy bank it’s okay to steal from for fun stuff.
It’s also a little less burdensome than traditional cards, because you don’t have to go get the card, etc. And I know this all sounds silly, but hey, my audience knows the historical pains of PayPal from a developer point of view, yet 50% of you used it to check out here.
So in short, because users want PayPal, we should offer it. I want to take people’s money when they are ready to give it to me. And if I were doing a brand new store, I’d probably go the single merchant route and go with Braintree.
This reads a bit like an ad, and it’s not, but you have no idea how much time this would’ve saved me if someone told me about a year and a half ago… not that it was possible then, but still. It might help someone else now.
Sidenote: I’m not exactly sure how all WordPress eCommerce systems handle Reference Transactions. However, WooCommerce Subscriptions handles it, and if others don’t yet I’d guess they will sooner rather than later.
In summary: for new subscription stores, either don’t take PayPal, or do so with Braintree to get Reference Transactions out of the gate; and for existing stores, go through the process of enabling Reference Transactions!